SLIDE 1
CEE Investment Briefing
Kevin Turpin
Budapest, January 30th 2020
Regional Director of Research
CEE | Colliers International
Colliers International 2019 20
CEE Investment Briefing Kevin Turpin Regional Director of Research - - PowerPoint PPT Presentation
CEE Investment Briefing Kevin Turpin Regional Director of Research - - PowerPoint PPT Presentation
CEE Investment Briefing Kevin Turpin Regional Director of Research CEE | Colliers International Budapest, January 30 th 2020 CEE Headlines for 2020 Economies & Cycles Geopolitics Sovereign Ratings Data &
SLIDE 2
SLIDE 3
Colliers International 2019 21
Economic Growth Cooling Across Europe
CEE remains positive but risks are present
GDP (Real) Growth Forecast 2020-2023 (%pa)
< 1.0% 1.0 - 2.0% 2.0 - 3.0% >3.0%
Source: Oxford Economics Jan 2020
SLIDE 4
Colliers International 2019 22
Retail Sales Outlook is Positive
CEE markets have experienced strong wage growth
Total Retail Sales (US$ PPP) Growth Forecast 2020-2023 (%pa)
<2.0% 2.0 - 3.0% 3.0 - 4.0% 4.0 – 5.0% >5.0%
Source: Oxford Economics Jan 2020
SLIDE 5
Colliers International 2019 23
Unemployment a Double-edged Sword
Many markets face a war for talent
2019 Unemployment Rate (%) ILO Definition
<3.0% 3.0 - 5.0% 5.0 - 7.0% 7.0 – 9.0% >9.0%
Source: Oxford Economics Jan 2020
SLIDE 6
Colliers International 2019 24
CEE Investment flows by Country: 2007 - 2019
Volumes remain healthy at ca. €13.4 bn … How long will this last? Poland takes a 55% share in 2019
Source: Real Capital Analytics, Colliers International (Volumes exclude Land and Development
SLIDE 7
Colliers International 2019 25
CEE Investment flows by Sector: 2007 - 2019
Another near record year despite the drop off in Retail. Office transactions dominate with a 51% share.
Source: Real Capital Analytics, Colliers International (Volumes exclude Land and Development
SLIDE 8
Colliers International 2018 26
Sources of Capital: 2018 vs. 2019
CEE domestic players, WEU and a lot of noise about Asian capital Czech (35%) and Hungarian (68%) capital very active in their own markets
Split of purchaser capital by region of origin
2019
SLIDE 9
Colliers International 2019 27
Private Equity is Chasing Returns
40.0 37.5 35.0 32.5 30.0 27.5 25.0 22.5 20.0 17.5 15.0 12.5 10.0 7.5 5.0 2.5 0.0 REAL ESTATE CORE REAL ESTATE CORE- PLUS REAL ESTATE DISTRESSED REAL ESTATE VALUE ADDED REAL ESTATE DEBT REAL ESTATE SECONDARIES REAL ESTATE OPPORTUNISTIC REAL ESTATE FUND OF FUNDS REAL ESTATE CO- INVESTMENT Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Oct-19
USD bn
Source: Preqin
Source: Preqin
CURRENT PRIVA TE EQUITY “DRY POWDER”
SLIDE 10
Colliers International 2019 28
Q2 2007 Q4 2019 Q2 2007 Q4 2019 Q2 2007 Q4 2019 GERMANY (BLENDED) 4.70 2.95 5.65 4.45 6.50 4.20 CZECH REPUBLIC 5.75 4.00 5.50 4.75 6.50 5.25 POLAND 5.75 4.50 6.50 4.00 7.50 6.50 HUNGARY 6.25 5.00 6.00 5.50 7.00 7.00 SLOVAKIA 6.50 5.50 6.50 5.00 6.75 6.50 ROMANIA 6.00 7.00 7.00 6.50 9.00 8.25 BULGARIA 8.00 8.00 7.30 7.25 9.00 9.50
MARKET OFFICES SHOPPING CENTRES INDUSTRIAL & LOGISTICS
CEE & German Prime Yields: Q2 2007 vs. Q4 2019
Almost all yields have well surpassed pre-GFC levels
SLIDE 11
Colliers International 2019 29
CEE PRIME OFFICE YIELD (%) SPREADS ACROSS TO GERMANY AND 10 YEAR EURO BONDS
CEE Remains Attractive Despite Further Compression
How low can we go?
105 - 505 bps spread to Germany 370 - 770 bps spread to 10 year bonds
Source: Colliers International, Oxford Economics
SLIDE 12
Colliers International 2019 30
Real estate continues to be viewed as attractive
asset class vs. bonds (low-yield) and equities (hi- volatility)
CEE is seen as attractive given the current risk /
reward profile
Large volumes of capital and low interest rates remain
Low Interest Rates & Excess Capital
What does this mean for CEE?
Development: Investment:
Indicative Debt / Margin Conditions*: ±2.5% @ 60-70% LTC <2.0% @ 60-70% LTV
*Debt & margins quoted are for Poland and will vary depending on various property related fundamentals, plus the asset class and origin of the bank.
SLIDE 13
Colliers International 2019 31
2020 CEE Outlook
Positives and Negatives
Negatives
- Despite some headwinds CEE economies are doing well
and are more diverse than ever
- Effect of rate rises on CEE is not immediate as funding
“yield gap” is quite wide. Yields therefore have a little more room to compress
- Headline rents are increasing in offices and rising across
- ther sectors
- Strong occupier markets for office and industrial with
strong development pipelines
- Wage growth is very positive for retail
- We could see some liquidity returning to the retail sector
Positives
- Potential of rates rising and risk of inflation spike
- Demand > Supply as owners hesitant to sell without
the opportunity for redeploying capital
- Product availability vs. sellers expectations
- EU funding reduces as punishment for “populism” or
as a result of EU political instability
- Wage growth negative for the business services
(BPO/SSC) and industrial
- E-commerce risk continues for retail (opportunity for
logistics?)